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Speaker 1: We begin this out with stocks inching lower. Jim Zelter

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Speaker 1: and the team over at pollow Asset Management looking for

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Speaker 1: opportunity outside of equities, saying, quote, if interest rates remain

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Speaker 1: higher as we expect, and the terminal Fed funds rate

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Speaker 1: stays higher than where it has been historically, we see

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Speaker 1: private credit as an attractive alternative to over valued public equities.

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Speaker 1: Jim joins us now for more. Jim, good morning, in

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Speaker 1: a very happy new year to you.

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Speaker 2: Good morning, Jonathan. I'm going to pick off.

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Speaker 1: This conversation by stealing one of Lisa's questions to start

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Speaker 1: twenty twenty five as stocks too rich or a bonds

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Speaker 1: too cheap?

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Speaker 3: Well, I think we have a backdrop. I think your

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Speaker 3: point about the US and China and Europe and the

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Speaker 3: three parties, you know, it's our view that there's intrtion

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Speaker 3: has been very consistent. The US economy has been the

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Speaker 3: beacon of opportunity in the last several years, strong economic growth,

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Speaker 3: capital coming from around the globe, and so in terms

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Speaker 3: of US talk, I don't want to talk about the

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Speaker 3: stock market. I really talking with the underline economy. Underline

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Speaker 3: economy looks like it's the place to invest. I don't

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Speaker 3: think it's any surprise that when you peel the onion

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Speaker 3: back private capital, which has really been embraced in the

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Speaker 3: US and gives diversity of funding, lets companies grow, start, expand,

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Speaker 3: and all the things we're talking about the global renaissance.

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Speaker 3: It's been the place to invest and it's been attracting capital.

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Speaker 3: Contrasts that to what's going on in the UK and

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Speaker 3: continental Europe, where they are stuck in a financing system

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Speaker 3: that's really fifteen twenty thirty years behind the rest of

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Speaker 3: what's going on in North America. It tells us that

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Speaker 3: the US is the place to invest.

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Speaker 1: So you think some of these problems in Europe might

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Speaker 1: be more structural in nature.

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Speaker 3: I think structural is really the key to really analysis.

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Speaker 3: It's very easy to focus on the last three to

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Speaker 3: six months we talk about the Liz Trust moment in

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Speaker 3: the UK. I think it is a great reminder for

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Speaker 3: this current administration as they've got great ambitions in terms

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Speaker 3: of US investment, capex, tariffs, immigration, a variety of other

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Speaker 3: big initiatives. It's good for this reminder of the Liz

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Speaker 3: Trust moment in the back of their minds. You know

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Speaker 3: what can happen if you lose confidence, but there's no

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Speaker 3: doubt I think if you look at what the Drogy

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Speaker 3: document did later last fall, he pointed out in one

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Speaker 3: hundred and fifty eight summary pages of all the challenges

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Speaker 3: that they have not really embraced. And while the banks

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Speaker 3: are in better shape than they've been in a couple

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Speaker 3: of decades in Europe, the US is the standout. We

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Speaker 3: have the greatest financial services sector in the world, we

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Speaker 3: have the deepest, broadest capital markets. We've undergone a tremendous

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Speaker 3: amount of regulations on our banks, and they've continued to.

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Speaker 2: Thrive in a more narrow world.

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Speaker 3: And that's the page that the Europeans should be looking at,

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Speaker 3: Embracing securitization, embracing private capital. They've got a massive amount

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Speaker 3: of infrastructure needs, and they should be embracing them for

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Speaker 3: their long term economic success.

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Speaker 4: In the meantime, people are saying that maybe the ghost

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Speaker 4: of lis Trust is kind of hovering over this administration

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Speaker 4: and hovering over the US treasure market right now, especially

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Speaker 4: given the rise that we've seen in longer term yields.

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Speaker 4: And I'm wondering how susceptible you are to changing your

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Speaker 4: view on how constructive the US economy is if you

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Speaker 4: get some more negative data prints. We had Greg Daeco

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Speaker 4: yesterday talking about a frozen job market. We had Neila

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Speaker 4: Richardson talking about how smaller companies really are feeling rates

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Speaker 4: where they are.

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Speaker 3: Rates have been higher for the last twelve to eighteen

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Speaker 3: ONMS they been higher. Obviously, we're in a period right

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Speaker 3: now where what the Fed did and its actions in

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Speaker 3: the fall and what the market has responded to is

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Speaker 3: a very unique period. So you're right, we are in

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Speaker 3: a little bit of a unique zone here with regard

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Speaker 3: to macro and rates in the US. I do think

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Speaker 3: we are in a period where rates do look attractive

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Speaker 3: versus where equities are, and we're in a period right

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Speaker 3: now where we're still the place of economic growth. But

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Speaker 3: is a sign for the administration about how much they

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Speaker 3: can push now Clearly the other side of the trade,

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Speaker 3: I would not probably be rete lowering rates right now.

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Speaker 3: I think that you have full employment, economy is doing

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Speaker 3: quite well. I'm not sure I see a need other

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Speaker 3: than economic textbook to lower rates in terms of the target.

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Speaker 3: But it does create a lot of room for the

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Speaker 3: new administration if they have weakness in any kind of

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Speaker 3: the economy, because of their initiatives, the FED put is back,

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Speaker 3: they have a lot of room to.

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Speaker 4: Move, your colleague, sort of edifying your points as you

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Speaker 4: say them, towards and slock moments ago, inflation reaccelerating to

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Speaker 4: your point about not necessarily needing to lower rates further.

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Speaker 4: You talk about credit being the sweet spot in debt,

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Speaker 4: maybe even over equities, and that has been the story

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Speaker 4: over a long period of time, the past couple of years.

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Speaker 4: If inflation could be reaccelerating, could you see that story

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Speaker 4: changing at a certain point.

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Speaker 2: Yeah, yeah, yes you could.

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Speaker 3: And I guess this, and there's a lot of consensus

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Speaker 3: out there about where the S and P is in

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Speaker 3: a go where rates are going. But in our view,

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Speaker 3: and the US economy is still the strength strength of

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Speaker 3: the globe, it's the beacon of economic opportunity. We still

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Speaker 3: have a lot of economic growth in terms of the

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Speaker 3: industrial renaissance that we've been talking about. So in our view,

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Speaker 3: the breadth of credit investment grade as well as non

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Speaker 3: investment grade, we try to find areas of dislocation or

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Speaker 3: areas of mismatch of capital and opportunity, and we're still

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Speaker 3: seeing it in credit versus the equity markets.

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Speaker 2: Now when you look at the S and P.

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Speaker 3: Five hundred, I would say that it's interesting, you've got

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Speaker 3: we all know what the magnificent seven are, but certainly

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Speaker 3: the other four hundred and ninety three a lot of

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Speaker 3: unloved opportunities in that in that basket. And there's probably

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Speaker 3: an opportunity in a non consensus view in terms of

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Speaker 3: those companies in terms of just pure economic growth.

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Speaker 2: But we are still listen.

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Speaker 3: Private credity has private credit and private capital has been

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Speaker 3: the engine of economic growth in the US. And I

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Speaker 3: will you know again I said earlier, it's not a

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Speaker 3: great iron it's a great irony that the US has

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Speaker 3: been the bastion of economic growth with the embracing of

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Speaker 3: private capital. But you know, one of the greatest investors

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Speaker 3: in US capital history, Warren Buffett in Berkshire. When you

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Speaker 3: really pull the covers back on Berkshire Hathaway. Of the

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Speaker 3: trillion dollars of assets at the end of twenty three,

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Speaker 3: thirty percent are in the public equities that we know about, Apple,

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Speaker 3: Coca Cola, American Express via A, but seventy percent are

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Speaker 3: private companies. It's the growth engine. He's the greatest capitalist.

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Speaker 3: He's been doing it for fifty years. That's where growth

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Speaker 3: and opportunity is in America. Private capital in private companies,

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Speaker 3: and they have access in the debt markets. They don't

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Speaker 3: need to go public to raise capital anymore. Eight thousand

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Speaker 3: public companies to four thousand. That's the trend in the future.

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Speaker 3: And we're sitting really at an intersection trying to bring

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Speaker 3: those opportunities to the broad group of investors, retirees, and

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Speaker 3: savers around the globe.

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Speaker 1: So you mentioned Europe and Europe centainly the bank channel

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Speaker 1: is overburdened. We've been talking about this for years. The

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Speaker 1: Europeans have talkt about trying to do something with public

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Speaker 1: markets and the same way we have here in the

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Speaker 1: United States, it's not happening. I want to understand from

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Speaker 1: your perspective how you will work with the banks in

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Speaker 1: America going forward from here, because this is kind of

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Speaker 1: a new trend where the banks will originate the loans

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Speaker 1: and then you'll provide the money. How's that going to

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Speaker 1: work in years to come? How big can that opportunity be?

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Speaker 2: Oh?

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Speaker 3: I think we're I think twenty four was a pivot year,

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Speaker 3: you know, for us as a leading firm in this

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Speaker 3: industry and in this sector. You know, there was a

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Speaker 3: great headline and you and I talked about the three

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Speaker 3: of us have talked about in this show many times,

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Speaker 3: where the great battle between private capital and banks. The

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Speaker 3: reality is if you look at the commercial dialogue going

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Speaker 3: on between the top five, top ten institutions and the

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Speaker 3: handful of us to lead our industry, the amount of

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Speaker 3: integration dialogue working together on big deals has never been deeper.

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Speaker 2: Obviously, there was.

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Speaker 3: Our City Bank transaction, our City Group transaction, there was

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Speaker 3: a transaction we did with Standard Charter BNP, and so

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Speaker 3: I think we're still at the early days. These partnerships

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Speaker 3: need to have substance. They can't be excused the phrase

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Speaker 3: shotgun marriages. They have to be ones that really have substance, dialogue, trust,

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Speaker 3: and some history of doing a lot of transactions together.

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Speaker 3: We've been fortunate and all the ones we've put together

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Speaker 3: where there has been a lot of either history of

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Speaker 3: personnel or of activity. But I think it's I think

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Speaker 3: still it's early days, early innings. Now there's a lot

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Speaker 3: of headlines just to grab headlines, and there's not a

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Speaker 3: lot of substance behind them. But I think that trend

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Speaker 3: of private capital and bank partnerships is going to extend

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Speaker 3: in twenty five and twenty six, and I do think

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Speaker 3: if you think about the economic backdrop, I do sense

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Speaker 3: that there is a great opportunity for strategic m and

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Speaker 3: A that clearly feels like it's going to happen.

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Speaker 2: I'm a little bit more.

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Speaker 3: Skeptical about the massive IPO window. If you look at

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Speaker 3: the last ten years equity issue, this has been about

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Speaker 3: two hundred and fifty billion, fifty billion IPOs, two hundred

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Speaker 3: billion secondaries. That's removing all the stack numbers. I think

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Speaker 3: you still have a valuation issue with a lot of

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Speaker 3: private equity companies that want to come out and do

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Speaker 3: their IPO and so I think we have a consensus

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Speaker 3: view or non consensus view would apollow that that number

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Speaker 3: is going to be not as large as people think.

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Speaker 2: And so the big mismatch if.

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Speaker 3: You have a big credit market, a big equity market,

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Speaker 3: this area of hybrid in between, which we've been talking

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Speaker 3: a lot about applying capital to those over levered companies.

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Speaker 3: That's the opportunity of twenty five and twenty.

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Speaker 1: Six just to build on the IPO issue just a

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Speaker 1: little bit more. Is that just a valuation issue or

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Speaker 1: do you think it's a role that you have to

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Speaker 1: play here that these companies don't need to go public anymore.

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Speaker 2: It's a combination of both. It's a great question.

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Speaker 3: I think it is a valuation issue for probably fifty

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Speaker 3: to sixty percent of them. I think it's very very

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Speaker 3: clear now private companies have access to all sorts of capital,

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Speaker 3: debt and equity, preferred, convertible, whatever it may be. And

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Speaker 3: so the typical route where you needed to go to

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Speaker 3: have your employees be able to monetize their investments broad

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Speaker 3: based capital, equity revolvers. You saw what open Ai did

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Speaker 3: several months ago bringing in a bank facility. There's tremendous

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Speaker 3: pools of capital, private capital to confund in finances companies.

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Speaker 3: So going public is by no means the ticket to

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Speaker 3: liquidity that you needed in the past.

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Speaker 2: A lot more.

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Speaker 4: Options in five to ten years. Will there be a

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Speaker 4: difference between public and private markets?

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Speaker 3: We don't believe. So I think there will be some differentiations.

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Speaker 3: And I think the question that gets raised right after

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Speaker 3: that question that you ask, is, well, is there going

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Speaker 3: to be a massive compression in yields and the advantage

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Speaker 3: is going to go to those folks that have the bigger.

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Speaker 3: You're going to make money on the origination, the ability

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Speaker 3: to make the three, five, seven, ten billion dollar commitment

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Speaker 3: to XYZ company, that's where you're going to garner the

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Speaker 3: extra spread. But all the things that we're doing in origination,

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Speaker 3: in capital formation, in trying to bring some liquidity to

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Speaker 3: these markets, in terms of secondary activity, with transparency and

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Speaker 3: price discovery, I think the barriers and you know, what's

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Speaker 3: private is risky and what's public is safe. I think

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Speaker 3: those barriers will be coming down. And again I go

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Speaker 3: back to this Brookshare. It's no one really talks about it,

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Speaker 3: but it's it is quite an irony that the greatest

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Speaker 3: public investor of all time seventy percent of those companies

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Speaker 3: when you look at the when you look at the

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Speaker 3: web page, these are some great American companies and over

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Speaker 3: fifty years he's assembled them and they're massive compounders. And

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Speaker 3: that's seventy percent of the underlying value, Geico being at

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Speaker 3: the top, Clayton Holmes, BNSF, many many other great companies.

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Speaker 3: And I think that's a lesson versu all's there's companies

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Speaker 3: that are private and there's private equity. You should differentiate

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Speaker 3: between the two. But we clearly want to be part

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Speaker 3: of that big trend and offer those two investors in

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Speaker 3: retirementes around the globe. It's a big change in market structure.

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Speaker 1: You're going to be sticking with us to talk about

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Speaker 1: that change in market structure and the changes we could

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Speaker 1: be seeing in Washington, d C. A little bit later

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Speaker 1: this year. Jim's out to there for Apollo Asset Management,